After four years and a quadrupling of internet extensions, what metrics continue to make sense in the domain name industry? Which should we discard? And how do you gain understanding of this expanded market?

For registries, future success is dependent on grasping the changes that have already come. For registrars, it is increasingly important to identify winners and allocate resources accordingly. The question is: how?

The biggest barrier to both these goals, ironically, may be the industry's favorite measure: the number of registrations.

Since the earliest days, registrations have been the main marker of success: Who's up? Who's down? Who's in the top 10? Top five? But even when this approach made sense, it relied on ignoring the elephant in the room: dot-com.

The Verisign dot-com beast remains six times larger than the next largest TLD. But, for a long time, the fact that most of the other gTLDs and ccTLDs (and even sTLDs) were clumped closely together made registration figures the go-to metric.

Except now, in 2017, the same extreme of scale as dot-com to the others now exists at the other end of the market. There are more than a thousand new gTLDs in the root, but even the largest of them barely touch legacy gTLDs or ccTLDs in terms of numbers of registrations. It may be time to rethink how we look at the market.

Another traditional measure has been the number, or percentage, of parked domains. It used to be that if a domain owner wasn't actually using their domain to host a website, it was a sign the registration was more likely to be dropped or was purely speculative.

But do parked domains still tell that story? That parked domain is often intellectual property protection. It may be part of a planned online expansion. And while assumed to be speculative, often that parked domain is renewed again and again.

This is especially true with older registries. You could argue that in terms of a registry's inherent value, a parked domain that is held by a single owner for many years is more valuable than one with a website that changes hands every year.

Maybe we need to consider more than just whether a domain has a website attached and start digging into the history of its registration.

Intertwined

The truth is that the domain name market has been around for a relatively long time now and has become more complex and intertwined with the larger economy than we give it credit for. The market is also unusual in that it has not grown according to demand but in fits and starts, defined by and dependent on the arcane processes and approvals of overseeing body ICANN.

Dot-com is the giant of the internet because it was the only openly commercial online space available at a time when the internet's potential was first realized by businesses and entrepreneurs. Even now the ending ".com" in many ways defines the global address system. While its growth has slowed, it still towers over every other TLD.

Then came small bursts of new gTLDs, joined by more commercialized ccTLDs, which all benefitted from the globalization of the internet. Most of them are roughly the same size: between two and five million registrations. And now comes the new wave of TLDs that has produced a third block of registries: with registrations largely ranging from one thousand to one million.

These three-time periods tell a story about the domain name market: that for all its fluidity and its speed, the market is not only stable but also segmented. There is no point in Germany's dot-de dreaming of becoming the same size as dot-com, just as there is no point in dot-shop hoping to rival dot-fr in terms of numbers. Increasingly, peer comparison is going to become more important than pure numbers.

It's also not clear that there is much competition across segments — or even within them - once that initial purchase is made.

Will someone drop their dot-uk domain after they've bought their new dot-website domain? It seems unlikely. A tech business in Spain may look at a dot-es or a dot-tech. But it probably never considered Brazil's dot-br, or dot-racing (because it is a Spanish tech company, not a Brazilian racing company).

Once the decision and purchase are made, the website built and the email set up, the low cost of domain renewal reduces the likelihood of a company dropping it or moving to a new address. It is another of the peculiarities of the market: low price equals less movement. But even that is now being tested by new registries that charge variable "premium" rates for what they believe are more valuable individual names.

The secret of success

For these reasons, future success — for both registries and registrars — mostly likely lies in two things: high rates of renewal and future growth potential.

The domain renewal rate is increasingly a sign of the overall health of a registry. As the market changes, both that rate and any changes to it will become increasingly important in understanding whether the registry is going up or down in the market overall.

A high renewal rate shows stability and greater value in the registry. If that renewal rate goes up — compared to its peers — then the competition has picked off what it can. If the rate goes down, it may be vulnerable to other options in the market.

The renewal rate will tend to be higher and more stable in older TLDs, and lower and more varying in new gTLDs. But when compared to its peers, it can tell a larger story: too low or too variable may be a warning sign; higher or more stable could indicate a more solid registry, and one worth investing in.

The other biggest driver for success is future growth potential. And for this, it is necessary to look outside the domain name market to the real world.

When it comes to the wealth of new gTLDs — most of which are words or names that self-define themselves — growth potential is going to come down to a combination of brand, good policies and sheer luck.

The focus on registration numbers obscures what may be the long-term successful approach in this vast market. In some cases, aggressive, short-term marketing and low pricing has seen huge, sudden increases in registration followed by equally huge drop-offs a year later when domains come up for renewal. The largest registries in terms of numbers are also notable by their effort to tap the vast Chinese internet market. It's an approach that currently pays off in terms of registrations but is it sustainable?

Politics

As for more traditional registries, future growth depends as much as digital economies and politics as it does on internal policies. Germany's dot-de and the UK's dot-uk have long led the market in terms of registrations. It just so happens that they also have open registration policies and their associated countries have very large and successful digital economies.

A registry that may be interesting to watch is dot-eu since it represents not a single country but an economic region. Recent anti-European Union sentiment that has been most strongly defined by the UK and Brexit and the collapse of the Greek economy — but which has also seen large movements in Austria, the Czech Republic and Italy, among others - has seemingly slowed dot-eu's growth.

But despite last year's predictions, the European Union appears to have emerged stronger and, thanks to the unpredictable nature of the US presidency, its trading currency, the euro, is on the path to becoming the world's strongest currency. Does this mean that dot-eu will similarly benefit as companies see the growing value in a European trading block? We will have to see. But if broader sentiment is increasingly pro-EU then the answer is almost certainly yes.

In a world where you can choose from a huge array of internet extensions, new registrations will increasingly reflect what the registrant wants to say about themselves: who is their market? Are they are a traditional or unconventional business? Are they defined by their product, or their country, or their region? Or are they trying to trap the online zeitgeist and ride the wave of a current trend?

For the domain name industry, it is going to be increasingly difficult to track the ebs and flows of this global market. Which makes choosing the right metrics all the more important. Is it time to kill off the number of registrations as the industry's main measure of value? No. But it is time to start rethinking about how that market is segmented and take a broader view of what represents success.

By Kieren McCarthy, Executive Director at IFFOR; CEO at .Nxt. More blog posts from Kieren McCarthy can also be read here.

Comments

We track them here according to categories (businesses, groups, etc...). Recently, we added a report entitled "Multiple Registries", tracking registration numbers according to group of Registries operating 5 TLDs and more. If a group is missing, we 're happy to add it.

Interesting post, Kieren,
Looks like you've been reading some posts from ICANN CCT/MHI and ALAC mailing lists.
Remember that old expression that amateurs talk tactics while professionals study logistics? With the domain name industry, substitute "Usage" for "logistics". Usage plays an important part in whether a domain name is renewed. A domain name with a developed site is more likely to be renewed because the registrant has an investment greater than just the registration fee in the domain name. They may also be using it for e-mail or other services.

The ICANN CCT-RT has been trying, and failing, to understand how domain names are utilised with its "parking" paper. TLDs do not exist in isolation and this is more obvious when usage in a country level market is evaluated. The ccTLDs and the .COM tend to dominate the country level markets and the ccTLD generally becomes the first choice TLD for most registrants once the market matures.

With web usage metrics, there are two major trends in any TLD. The first applies to the characteristics of the domain names that are renewed. Thinking of them in terms of "content" and "no content" (and excluding redirects for the moment) is one way to deal with it simply. The domain names with content tend to renew at a higher rate than those without content. With the domain names that do not renew, the speculative and undeveloped domain names tend to drop at a higher rate. The highly speculative registrations, especially in new TLDs, do not renew well.

The Chinese market, especially in the new gTLDs, is quite speculative and the registrations tend to be one year wonders. This kind of speculative activity is common in an early phase market. Some of the registrations in the new gTLDs have been driven by discounting and that results in Boom and Bust registration patterns. The classic example is the XYZ 1 cent promotion where millions of domain names were registered and millions of these domain names subsequently deleted. Some of the gTLDs with significant Chinese market exposure also show similar low renewal rates. The usage patterns on Chinese dominated TLDs are also quite different to those seen in Western market TLDs.

The .EU ccTLD is more dependent on brand protection registrations than register-to-develop registrations. This is not necessarily a bad thing for a registry as those brand protection registrations are incredibly sticky in terms of renewals. However, the ccTLD has plateaued in the Western EU countries and a lot of the growth is coming from the Eastern EU countries where it is almost an alternative for .COM TLD. The mistake people make about the .EU is in looking at it as a single TLD when it is really a set of country level markets. These country level markets are dominated by the local ccTLDs and .COM TLD and .EU rarely gets more than 5% of the domain name market share in those countries.

The renewal rates in some of the new gTLDs are terrifying. Some months see rates below 10%. But there are some new gTLDs that have renewal rates approaching the ccTLD registries (Over 70% on new one year registrations.)

For registries, future success is dependent on grasping the changes that have already come. For registrars, it is increasingly important to identify winners and allocate resources accordingly. The question is: how?

For any business, future success requires a “grasp the changes that have already come.” Success also requires quantitative analyses of success and failure factors of the existing registries. For registrars, trying to identify winners and losers can be futile. If it were easy, there would be no losers. Thus, registrars need to adopt a portfolio management approach. Better management leads to higher profits. (Some of the registries adopted such an approach to new gTLD selection.)

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